Ratio Analysis project

Ratio Analysis project
1 2016 2017 Berhampur, Ganjam, Odisha A Project Report on OF SOUTHCO, BERHAMPUR Submitted to Biju Patnaik University of Technolozy InPartialfulfillmentofthedegreeof MASTER OF BUSINESS ADMINISTRATION Submitted by D.V.A.Subhash Roll no. -16MB15 Registration no – 1606301032 Internal Guide: External Guide: MR.Anup Sir of MBA Dept. Birnchi Narayan Mallik CFO, Southco, Berhampur
2 ACKNOWLEDGEMENT It gives me great pleasure to submit this project to the Biju Patnaik University of Technolozy as a part of my curriculum of MBA course. I take this opportunity with great pleasure to present this project on “RATIO ANALYSIS” which is a result of co operation, hard work, and good wishes of many people. I am greatly indebted to many people who have helped me directly or indirectly to complete the project report on many respects. I would express my sincere gratitude and thanks to my guide MBA Dept. for giving varied assistance and valuable suggestions contributing in successfully completion of this project work. I am grateful to “SOUTHCO”, for giving such an opportunity to undertake my project work with the esteemed organization. I convey my great respect and thanks to MR. B.N.MALLICK,CFO OF SOUTHCO for the guidance and supervision which he has extended by spending his valuable time thus helped in completing this project work. Besides this I thank to all the staff who have given information regarding the project in some way or other. Lastly I would like to thanks God and my parents for encouraging me to join this course and provide me with their constant supportand assistance to prepare this project. DATE: Place: Berhampur.
3 DECLARATION I hereby declare that this project “RATIO ANALYSIS OF SOUTHCO” has been prepared & submitted to our guide during the academic year 2017-18. I also declare that this project is a result of my own effort & is original. This report has not been submitted to any other institute and published at my other time. DATE : PLACE: ( MR D.V.A.SUBHASH)
4 Chapters Titles and topics Page. No 1 INTRODUCTION  Introduction 2 OBJECTIVES & METHODOLOGY  Need of study  Scope of study  Objectiveof the study  Review of Literature  Research Methodology  Limitation of study 3 COMPANY PROFILE 4 DATA ANALYSIS AND INTERPRETATION 5 SUGGESTIONS & CONCLUSION  Suggestions  Conclusion 6 ANNEXURE BIBLOGRAPHY
5 List of Ratios List of Ratios Liquidity Ratio Current Ratio Quick/ Acid test Ratio Absolute Liquid Ratio Activity Ratio Inventory Turn over Ratio Receivables Turnover Ratio Payables Turnover Ratio Profitability Ratio General Gross Profit Ratio Net Profit Ratio Operating Ratio Overall Return on Investment Ratio Dividend Payout Ratio Price Earning Ratio Leverage Ratio Debt- Equity Ratio Funded Debt To Total Capitalization Debt Service Ratio
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7 INTRODUCTION : ABOUT RATIO ANALYSIS The ratio analysis is the most powerful tool of financial analysis. Several ratios calculated from the accounting data can be grouped into various classes according to financial activity or function to be evaluated. DEFINITION: “The indicate quotient of two mathematical expressions “and as “The relationship between two or more things. “It evaluates the financial position and performance of the firm. As started in the beginning many diverse groups of people are interested in analyzing financial information to indicate the operating and financial efficiency and growth of firm. These people use ratios to determine those financial characteristics of firm in which they interested with the help of ratios one can determine. The ability of the firm to meet its current obligations. The extent to which the firm has used its long-term solvency by borrowing funds. The efficiency with which the firm is utilizing its assets in generating the sales revenue. The overall operating efficiency and performance of firm. The information contained in these statements is used by management, creditors, investors and others to form judgment about the operating performance and financial position of firm.
8 Uses of financial statement can get further insight about financial strength and weakness of the firm if they properly analyze information reported in these statements. Management should be particularly interested in knowing financial strength of the firm to make their best use and to be able to spot out financial weaknesses of the firm to take suitable corrective actions. The further plans firm should be laid down in new of the firm’s financial strength and weaknesses. Thus financial analysis is the starting point for making plans before using any sophisticated forecasting and planning procedures. Understanding the past is a prerequisite for anticipating the future. Ratio analysis is used to evaluate various aspects of a company's operating and financial performance such as its efficiency, liquidity, profitability and solvency. The trend of these ratios over time is studied to check whether they are improving or deteriorating. FinancialRatio Analysis Financial ratios are mathematical comparisons of financial statement accounts or categories. These relationships between the financial statement accounts help investors, creditors, and internal company management understand how well a business is performing and of areas needing improvement. An accounting ratio compares two aspects of a financial statement, such as the relationship (or ratio) of current assets to current liabilities. The ratios can be used to evaluate the financial condition of a company, including the company's strengths and weaknesses. Ratios Defined. The illustration below shows a Business Ratios table. It includes dozens of standard business ratios calculated from business plan financials, and used and expected by bankers, financial analyst, and investors. It also includes a column of statistical indicators for the specific type of business
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10 NEED OF THE STUDY  Comparison between two or more financial statements  Analysis of financial aspects in the organization  Analysis of financial statements through ratios  For better understanding of financial position of the organization  To know the strengths and weakness of the organization  Predetermined activities are done through the ratios
11 Scope of the study The scope of the study is limited to collecting financial data published in the annual reports of the company every year. The analysis is done to suggest the possible solutions. The study is carried out for 4 years (2013-16) Using the ratio analysis, firms past, present and future performance can be analyzed and this study has been divided as short term analysis and long term analysis. The firm should generate enough profits not only to meet the expectations of owner, but also to expansion activities.
12 OBJECTIVES OF STUDY 1. To study and analyze the financial position of the Company through ratio analysis. 2. To suggest measures for improving the financial performance of organization. 3. To analyze the profitability position of the company. 4. To assess the return on investment. 5. To analyze the asset turnover ratio. 6. To determine the solvency position of company. 7. To suggest measures for effective and efficient usage of inventory REVIEW OF LITERATURE
13 FINANCIAL ANALYSIS Financial analysis is the process of identifying the financial strengths and weakness of the firm. It is done by establishing relationships between the items of financial statements viz., balance sheet and profit and loss account. Financial analysis can be undertaken by management of the firm, viz., owners, creditors, investors and others. . Objectives of the financial analysis Analysis of financial statements may be made for a particular purpose in view. 1. To find out the financial stability and soundness of the business enterprise. 2. To assess and evaluate the earning capacity of the business 3. To estimate and evaluate the fixed assets, stock etc., of the concern. 4. To estimate and determine the possibilities of future growth of business. 5. To assess and evaluate the firm’s capacity and ability to repay short and long term loans Significance of financial analysis : Financial analysis serves the following purpose: To know the operational efficiency of the business:
14 The financial analysis enables the management to find out the overall efficiency of the firm. This will enable the management to locate the weak Spots of the business and take necessary remedial action. Helpful in measuringthe solvency of the firm: The financial analysis helps the decision makers in taking appropriate decisions for strengthening the short-term as well as long-term solvency of the firm. Comparisonof past and present results: Financial statements of the previous years can be compared and the trend regarding various expenses, purchases, sales, gross profit and net profit can be ascertained. Helps in measuringthe profitability: Financial statements show the gross profit, & net profit. Inter‐firm comparison: The financial analysis makes it easy to make inter-firm comparison. This comparison can also be made for various time periods. Bankruptcy and Failure: Financial statement analysis is significant tool in predicting the bankruptcy and the failure of the business enterprise. Financial statement analysis accomplishes this through the evaluation of the solvency position. ] Helps in forecasting: The financial analysis will help in assessing future development by making forecasts and preparing budgets. METHODS OF ANALYSIS:
15 A financial analyst can adopt the following tools for analysis of the financial statements. These are also termed as methods of financial analysis. A. Comparative statement analysis B. Common-size statement analysis C. Trend analysis D. Funds flow analysis E. Ratio analysis NATUREOF RATIO ANALYSIS Ratio Analysis is a powerful tool of financial analysis. A ratio is defined as "the indicated quotient of mathematical expression" and as "the relationship between two or more things". A ratio is used as benchmark for evaluating the financial position and performance of the firm. The relationship between two accounting figures, expressed mathematically, is known as a financial ratio. Ratio helps to summarizes large quantities of financial data and to make qualitative judgment about the firm's financial performance. The persons interested in the analysis of financial statements can be grouped under three head owners (or) investors who are desired primarily a basis for estimating earning capacity. Creditors who are concerned primarily with Liquidity and ability to pay interest and redeem loan within a specified period. Management is interested in evolving analytical tools that will measure costs, efficiency, liquidity and profitability with a view to make intelligent decisions STANDARDSOF COMPARISON The ratio analysis involves comparison for an useful interpretation of the financial statements. A single ratio in itself does not indicate favorable or unfavorable condition. It should be compared with some standard. Standards of comparison are: 1. Past Ratios 2. Competitor's Ratios
16 3. Industry Ratios 4. Projected Ratios Past Ratios: Ratios calculated from the past financial statements of the same firm. Competitor's Ratios: Ratios of some selected firms, especially the most progressive and successful competitor at the same point in time. Industry Ratios: Ratios of the industry to which the firm belongs. Projected Ratios: Ratios developed using the projected financial statements of the same firm. TIME SERIES ANALYSIS The easiest way to evaluate the performance of a firm is to compare its present ratios with past ratios. When financial ratios over a period of time are compared, it is known as the time series analysis or trend analysis. It gives an indication of the direction of change and reflects whether the firm's financial performance has improved, deteriorated or remind constant over time. CROSS SECTIONAL ANALYSIS Another way to comparison is to compare ratios of one firm with some selected firms in the industry at the same point in time. This kind of comparison is known as the cross-sectional analysis. It is more useful to compare the firm's ratios with ratios of a few carefully selected competitors, who have similar operations. INDUSTRY ANALYSIS To determine the financial conditions and performance of a firm. Its ratio may be compared with average ratios of the industry of which the firm is a member. This type of analysis is known as industry analysis and also it helps to ascertain the financial standing and capability of the firm & other firms in the industry. Industry ratios are important standards in view of the fact that each industry has its characteristics which influence the financial and operating relationships. TYPES OF RATIOS Management is interested in evaluating every aspect of firm's performance. In view of the requirement of the various users of ratios, we may classify them into following four important categories:
17 1. Liquidity Ratio 2. Leverage Ratio 3. Activity Ratio 4. Profitability Ratio 1. LIQUIDITY It is essential for a firm to be able to meet its obligations as they become due. Liquidity Ratios help in establishing a relationship between cast and other current assets to current obligations to provide a quick measure of liquidity. A firm should ensure that it does not suffer from lack of liquidity and also that it does not have excess liquidity. A very high degree of liquidity is also bad, idle assets earn nothing. The firm's funds will be unnecessarily tied up in current assets. Therefore it is necessary to strike a proper balance between high liquidity. Liquidity ratios can be divided into three types: 1 Current Ratio 2 Quick Ratio 3 Cash Ratio Current Ratio Current ratio is an acceptable measure of firm’s short-term solvency Current assets includes cash within a year, such as marketable securities, debtors and inventors. Prepaid expenses are also included in current assets as they represent the payments that will not made by the firm in future. All obligations maturing within a year are included in current liabilities. These include creditors, bills payable, accrued expenses, short-term bank loan, income-tax liability in the current year. The current ratio is a measure of the firm's short term solvency. It indicated the availability of current assets in rupees for every one rupee of current liability. A current ratio of 2:1 is considered satisfactory. The higher the current ratio, the greater the margin of safety; the larger the amount of current assets in relation to current liabilities, the more the firm's ability to meet its obligations. It is a cured -and -quick measure of the firm's liquidity. Current ratio is calculated by dividing current assets and current liabilities. Quick Ratio
18 Quick Ratio establishes a relationship between quick or liquid assets and current liabilities. An asset is liquid if it can be converted into cash immediately or reasonably soon without a loss of value. Cash is the most liquid asset, other assets that are considered to be relatively liquid asset and included in quick assets are debtors and bills receivables and marketable securities (temporary quoted investments). Liquid Assets Quick Ratio = ---------------------------- Current Liabilities Inventories are converted to be liquid. Inventories normally require some time for realizing into cash; their value also has a tendency to fluctuate. The quick ratio is found out by dividing quick assets by current liabilities. Generally, a quick ratio of 1:1 is considered to represent a satisfactory current financial condition. Quick ratio is a more penetrating test of liquidity than the current ratio, yet it should be used cautiously. A company with a high value of quick ratio can suffer from the shortage of funds if it has slow- paying, doubtful and long duration outstanding debtors. A low quick ratio may really be prospering and paying its current obligation in time. Cash Ratio Cash is the most liquid asset; a financial analyst may examine Cash Ratio and its equivalent current liabilities. Cash and Bank balances and short- term marketable securities are the most liquid assets of a firm, financial analyst stays look at cash ratio. Trade investment is marketable securities of equivalent of cash. If the company carries a small amount of cash, there is nothing to be worried about the lack of cash if the company has reserves borrowing power. Cash Ratio is perhaps the most stringent Measure of liquidity. Indeed, one can argue that it is overly stringent. Lack of immediate cash may not matter if the firm stretch its payments or borrow money at short notice.
19 LEVERAGE RATIOS Financial leverage refers to the use of debt finance while debt capital is a cheaper source of finance: it is also a riskier source of finance. It helps in assessing the risk arising from the use of debt capital. Two types of ratios are commonly used to analyze financial leverage. 1. Structural Ratios & 2. Coverage ratios. Current assets - Inventories Quick Ratio = _________________________ Current Liabilities Cash and bank balances + Current Investment Cash Ratio= ------------------------------------------------------------------------- Current Liabilities Structural Ratios are based on the proportions of debt and equity in the financial structure of firm. Coverage Ratios shows the relationship between Debt Servicing, Commitments and the sources for meeting these burdens. The short-term creditors like bankers and suppliers of raw material are more concerned with the firm's current debt-paying ability. On the other hand, long-term creditors like debenture holders, financial institutions are more concerned with the firm's long-term financial strength. To judge the long-term financial position of firm, financial leverage ratios are calculated. These ratios indicated mix of funds provided by owners and lenders. There should be an appropriate mix of Debt and owner's equity in financing the firm's assets. The process of magnifying the shareholder's return through the use of Debt is called "financial leverage" or "financial gearing" or "trading on equity". Leverage Ratios are calculated to measure the financial risk and the firm's ability of using Debt to share holder's advantage.
20 Leverage Ratios can be divided into five types. 1 Debt equity ratio. 2 Debt ratio. 3 Interest coverage ratio 4 Proprietary ratio. 5 Capital gearing ratio Debt equity ratio It indicates the relationship describing the lenders contribution for each rupee of the owner's contribution is called debt-equity ratio. Debt equity ratio is directly computed by dividing total debt by net worth. Lower the debt-equity ratio, higher the degree of protection. A debt-equity ratio of 2:1 is considered ideal. The debt consists of all short term as well as long-term and equity consists of net worth plus preference capital plus Deferred Tax Liability. Long term Debts Debt Equity Ratio = ------------------------------------------------------- Share holder funds (Equities Debt ratio: Several debt ratios may used to analyze the long-term solvency of a firm. The firm may be interested in knowing the proportion of the interest- bearing debt in the capital structure. It may, therefore, compute debt ratio by dividing total total debt by capital employed on net assets. Total debt will include short and long-term borrowings from financial institutions, debentures/bonds, deferred payment arrangements for buying equipments, bank borrowings, public deposits and any other interest-bearing loan. Capital employed will include total debt net worth. Interest Coverage Ratio The interest coverage ratio or the time interest earned is used to test the firms’ debt servicing capacity. The interest coverage ratio is computed by dividing earnings before interest and taxes by interest charges. The interest coverage ratio shows the number of times the interest charges are covered by funds that are ordinarily available for their payment. We
21 can calculate the interest average ratio as earnings before depreciation, interest and taxes divided by interest. Proprietary ratio The total shareholder's fund is compared with the total tangible assets of the company. This ratio indicates the general financial strength of concern. It is a test of the soundness of financial structure of the concern. The ratio is of great significance to creditors since it enables them to find out the proportion of share holders funds in the total investment of business. Debt Debt Ratio = ------------------------------ Equity EBIT Interest Coverage ratio = ------------------------------ Interest Net worth Proprietary Ratio = -------------------------------------------------- x 100 Total tangible assets Capital gearing ratio: This ratio makes an analysis of capital structure of firm. The ratio shows relationship between equity share capital and the fixed cost bearing i.e., preference share capital and debentures. ACTIVITY RATIOS Turnover ratios also referred to as activity ratios or asset management ratios, measure how efficiently the assets are employed by a firm. These ratios are based on the relationship between the level of activity, represented by sales or cost of goods sold and levels of various assets. The improvement turnover ratios are inventory turnover, average collection period, receivable turn over, fixed assets turnover and total assets turnover. Activity ratios are employed to evaluate the efficiency with which the firm manages and utilize its assets. These ratios are also called turnover ratios
22 because they indicate the speed with which assets are being converted or turned over into sales. Activity ratios thus involve a relationship between sales and assets. A proper balance between sales and assets generally reflects that asset utilization. Activity ratios are divided into four types: 1 Total capital turnover ratio 2 Working capital turnover ratio 3 Fixed assets turnover ratio 4 Stock turnover ratio Total capital turnover ratio: This ratio expresses relationship between the amounts invested in this assets and the resulting in terms of sales. This is calculated by dividing the net sales by total sales. The higher ratio means better utilization and vice-versa. Some analysts like to compute the total assets turnover in addition to or instead of net assets turnover. This ratio shows the firm's ability in generating sales from all financial resources committed to total assets. Equity capital Capital gearing ratio = ----------------------------------------------- P.S capital +Debentures +Loans Sales Total assets turnover = ---------------------------- Capital employed. Working capital turnover ratio: This ratio measures the relationship between working capital and sales. The ratio shows the number of times the working capital results in sales. Working capital as usual is the excess of current assets over current liabilities. The following formula is used to measure the ratio: Sales Working capital turnover ratio = ----------------------------------------- Working capital
23 Fixed asset turnover ratio: The firm may which to know its efficiency of utilizing fixed assets and current assets separately. The use of depreciated value of fixed assets in computing the fixed assets turnover may render comparison of firm's performance over period or with other firms. The ratio is supposed to measure the efficiency with which fixed assets employed a high ratio indicates a high degree of efficiency in asset utilization and a low ratio reflects inefficient use of assets. However, in interpreting this ratio, one caution should be borne in mind, when the fixed assets of firm are old and substantially depreciated, the fixed assets turnover ratio tends to be high because the denominator of ratio is very low. Stock turnover ratio: Stock turnover ratio indicates the efficiency of firm in producing and selling its product. It is calculated by dividing the cost of goods sold by the average stock. It measures how fast the inventory is moving through the firm and generating sales. The stock turnover ratio reflects the efficiency of inventory management. The higher the ratio, the more efficient the management of inventories and vice versa .However, this may not always be true. A high inventory turnover may be caused by a low level of inventory which may result if frequent stock outs and loss of sales and customer goodwill. Sales Working capital turnover ratio = ------------------------------- Working capital Net sales Fixed asset turnover ratio = ------------------------- Fixed assets Cost of goods sold Stock turnover ratio = ------------------------------ Average stock Opening stock + Closing stock
24 Average stock = -------------------------------------------- 2 PROFITABILITY RATIOS: A company should earn profits to survive and grow over a long period of time. Profits are essential but it would be wrong to assume that every action initiated by management of a company should be aimed at maximizing profits. Profit is the difference between revenues and expenses over a period of time. Profit is the ultimate 'output' of a company and it will have no future if it fails to make sufficient profits. The financial manager should continuously evaluate the efficiency of company in terms of profits. The profitability ratios are calculated to measure the operating efficiency of company. Creditors want to get interest and repayment of principal regularly. Owners want to get a required rate of return on their investment. Generally, two major types of profitability ratios are calculated: Profitability in relation to sales Profitability in relation to investment Profitability Ratios can be divided into six types: 1 Gross profit ratio 2 Operating profit ratio 3 Net profit ratio 4 Return on investment 5 Earns per share 6 Operating expenses ratio 1 Gross profit ratio: First profitability ratio in relation to sales is the gross profit margin the gross profit margin reflects. The efficiency with which management produces each unit of product. This ratio indicates the average spread between the cost of goods sold and the sales revenue. A high gross profit margin is a sign of good management. A gross margin ratio may increase due to any of following factors: higher sales prices cost of goods sold remaining constant, lower cost of goods sold, sales prices remaining constant. A low gross profit margin may reflect higher cost of goods sold due to firm's inability to purchase raw materials at favorable terms, inefficient utilization
25 of plant and machinery resulting in higher cost of production or due to fall in prices in market. This ratio shows the margin left after meeting manufacturing costs. It measures the efficiency of production as well as pricing. To analyze the factors underlying the variation in gross profit margin, the proportion of various elements of cost (Labor, materials and manufacturing overheads) to sale may studied in detail. 2 Operating profit ratio This ratio expresses the relationship between operating profit and sales. It is worked out by dividing operating profit by net sales. With the help of this ratio, one can judge the managerial efficiency which may not be reflected in the net profit ratio. 3 Net profit ratio Net profit is obtained when operating expenses, interest and taxes are subtracted from the gross profit. Net profit margin ratio established a relationship between net profit and sales and indicates management's efficiency in manufacturing, administering and selling products. This ratio also indicates the firm's capacity to withstand adverse economic conditions. A firm with a high net margin ratio would be in an advantageous position to survive in the face of falling selling prices, rising costs of production or declining demand for product This ratio shows the earning left for share holders as a percentage of net sales. It measures overall efficiency of production, administration, selling, financing. Pricing and tax management. Jointly considered, the gross and net profit margin ratios provide a valuable understanding of the cost and profit structure of the firm and enable the analyst to identify the sources of business efficiency / inefficiency. Gross profit Gross profit ratio = ------------------------x 100 Net sales
26 Operating profit Operating profit ratio = ---------------------------x 100 Net sales Net Profit Net Profit Ratio = --------------------------- x 100 Net sales 4 Return on investment: This is one of the most important profitability ratios. It indicates the relation of net profit with capital employed in business. Net profit for calculating return of investment will mean the net profit before interest, tax, and dividend. Capital employed means long term funds. 5 Earnings per share: This ratio is computed by earning available to equity share holders by the total amount of equity share outstanding. It reveals the amount of period earnings after taxes which occur to each equity share. This ratio is an important index because it indicates whether the wealth of each share holder on a per share basis as changed over the period. 6 Operating expenses ratio It explains the changes in the profit margin ratio. A higher operating expenses ratio is unfavorable since it will leave a small amount of operating income to meet interest, dividends. Operating expenses ratio is a yardstick of operating efficiency, but it should be used cautiously. It is affected by a number of factors such as external uncontrollable factors, internal factors. This ratio is computed by dividing operating expenses by sales. Operating expenses equal cost of goods sold plus selling expenses and general administrative expenses by sales. E.B.I.T Return on investment = ---------------------------------------- x 100
27 Capital employed Net profit Earnings per share = ------------------------------------ x 100 Number of equity shares Operating expenses Operating expenses ratio = ----------------------------- x 100 Sales Research Methodology Research Design In view of the objects of the study listed above an exploratory research design has been adopted. Exploratory research is one which is largely interprets and already available information and it lays particular emphasis on analysis and interpretation of the existing and available information. To know the financial status of the company. To know the credit worthiness of the company. To offer suggestions based on research finding. Data Collection Methods
28 Primary Data Information collected from internal guide and finance manager. Primary data is first hand information. Secondary Data Company balance sheet and profit and loss account. secondary data is second hand information. Data Collection Tools To analyze the data acquire from the secondary sources “Ratio Analysis “The scope of the study is defined below in terms of concepts adopted and period under focus. First the study of Ratio Analysis is confined only to the southcoodisha. Secondly the study is based on the annual reports of the organization for a period of 4 years from 2013-14 to 2016-17 the reason for restricting the study to this period is due time constraint Past Ratios: Ratios calculated from the past financial statements of the same firm. Competitor's Ratios: Ratios of some selected firms, especially the most progressive and successful competitor at the same point in time. Industry Ratios: Ratios of the industry to which the firm belongs. Projected Ratios: Ratios developed using the projected financial statements of the same firm. TIME SERIES ANALYSIS The easiest way to evaluate the performance of a firm is to compare its present ratios with past ratios. When financial ratios over a period of time are compared, it is known as the time series analysis or trend analysis. It gives an indication of the direction of change and reflects whether the firm's financial performance has improved, deteriorated or remind constant over time.
29 CROSS SECTIONAL ANALYSIS Another way to comparison is to compare ratios of one firm with some selected firms in the industry at the same point in time. This kind of comparison is known as the cross-sectional analysis. It is more useful to compare the firm's ratios with ratios of a few carefully selected competitors, who have similar operations. INDUSTRY ANALYSIS To determine the financial conditions and performance of a firm. Its ratio may be compared with average ratios of the industry of which the firm is a member. This type of analysis is known as industry analysis and also it helps to ascertain the financial standing and capability of the firm & other firms in the industry. Industry ratios are important standards in view of the fact that each industry has its characteristics which influence the financial and operating relationships. LIMITATIONS The study was limited to only four years Financial Data. The study is purely based on secondary data which were taken primarily from Published annual reports of SOUTHCO. There is no set industry standard for comparison and hence the inference is made on general standards. The ratio is calculated from past financial statements and these are not indicators of future. The study is based on only on the past records. Non availability of required data to analysis the performance.
30 The short span of the time provided also one of limitations
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33 COMPANY PROFILE  INTRODUCTON OF SOUTHCO. The Southern Electricity Supply Company of Odisha limited (SOUTHCO) was incorporated on 19-11-1997 under the companies Act, 1956 as a public Limited company. The Company started functioning with effect from 26-11-1998, under the distribution and retail supply license of GRIDCO, after notification in the official gazette by the Govt. of Odisha, SOUTHCO received the distribution and retail supply license from Odisha Electricity Regulatory commission(OERC) for distribution and retail supply of electricity in the southern Odisha, consisting of district of Ganjam, Gajapati, Rayagada, Koraput, Phulbani, Kandhamal, Nawrangpur, Malkangiri,and Puri(some parts) with effect from 01-04-1999.By virtue of Power sector reform in Odisha. SOUTHCO became a subsidiary of BSES Limited, Mumbai on 1st April, 1999 by acquisition of 51% of the share holding of the company by BSES Limited. The company has authorized and paid up capital of Rs.37.66 crores. At present, SOUTHCO operates in the geographical area covering 47,000sq.kms.and provides electricity to about 16 lakhs consumers in its licensed area VISION OF THE COMPANY SOUTHCO is committed to transformitself into a successfuland efficient electric supply company, responsiveto the needs and expectation of consumers and interests of all stake holders. Through teamwork and innovation, SOUTHCO shallensure.  Development of an efficient and reliable electricity supply network which meets the requirements of diversegroup of consumers.  Development of the company as a learning organisation which consider customer satisfaction as main purposeof business.  Streamlining of the billing system, revenuecollection and other value added servicefor consumers.
34  Strengthening of safety, loss reduction activities & promoting environmentprotection. POWER SUPPLY CHAIN The above drawn graph is explained in words: GENERATION This is very first stage and is of prime importance in the power supply chain. As we all known that power is generated from dam, but the generation of power depends upon the level of water capacity in the dam and the height of the water which falls on the turbine which generates power @220 kilo-watt. This generated power is sub-divided into 132 kilo-watt of power and is transferred to the transmission station through a conductor which helps in the proper transfer of power. TRANSMISSION •GENERATION 220KV •TRANSMISSION 220/132KV •DISTRIBUTION 132/33KV
35 This stage plays linkage role between generation and distribution stage and is of crucial significance. The transmission station receives power at 132 kilo-volt from generation station and step down the received power into 33 kilo-volt to transfer it to the various distribution stations. It uses a conductor for transferring the power to the distribution station. DISTRIBUTION This is the last stage in the power supply chain. It is from a distribution station that a consumer receives power. A distribution station receives power from the transmission station at 33kv, step down to 11 kv and supplies to its various consumers through distribution transformers at230 volts. INTRODUCTION OF POWER SECTOR AND SEB State Electricity Boards are constituted by various states Government under the Electricity (Supply) Act 1948, which is central Act. The economic growth of any region largely hinges on the infrastructure, particularly power. There were a number of factors, which contributed to the growth of inefficiency in the sector ultimately eroding the financial baseof the state electricity board. Primarily the non commercial functioning of the board resulted in serious constraints leading to the present’s crisis. The non commercial functioning of the board could be described as insufficient capitalization, low tariffs, poor bill collections, high T&D loss a burden of having to undertake non remunerative projects on behalf of the state without appropriate compensation. It was recognized that overall economic development of the state was threatened as long as power supply constrained industrial development of the state was threatened as long as power supply constrained industrial development and financial losses of the power sector burden public finance besides, it was also impossible of the state government to support other expenses of the power sector, such as investment in generations transmissions and distribution. The state’s severepower sector problems are attributed to the SEB’s poor operational efficiency, which is largely caused by the state government’s political interference.
36 Immediate minimum action to restore a measureof financial viability would include:  Finance restructuring to establish reasonabledebt equity and satisfactory financial objectives for SEB’s  Tariff adjustments to meet these revised objectives.  Improvements in mattering, billing and collections.  Contracting privatecompanies or NTPC to rehabilitate and operate poorly performing stations and other facilities and services.  State power strategy will also haveto include.  Privatization of power distribution. POWER SECTOR REFORM IN ODISHA Background to the reform:The power sector in Odisha suffered fromhigh transmission and distribution losses, inadequate accountability for various segments (generation, transmission,and distribution), poor financialperformance, poor quality of serviceand manpower related issues. There was a pressing need to solvethe financial problemin Odisha State Electricity Board (OSEB) and meet the projected demand of funds for investmentin generation, transmission and distribution system. Itwas also the time when the new national Economic policy, 1991 was announced which envisaged liberalization and private participation in infrastructuredevelopment. Reform Agenda: Keeping this view in mind, the state Government of Odisha pioneered Reform and Restructuring in the power sector by introducing POWER SECTOR REFORM ACT,1995, which came into effect from 1st April 1996.Odisha Electricity Regulatory Commission (OERC) was formed to establish an independent and transparent regulatory regime. The Government of Odisha decides to restructureand substantially privatizethe power sector, to make power supply more efficient and to be able to meet the investments needs of the sector. The Odisha government ultimate objective was to wit draw from the power sector as an operator of utilities, having instead privately-managed utilities operating in a
37 competitive and appropriately regulated power market.Power sector industry andmarket structures to be established under the reform program had been defined so as to facilitate this ultimate objective with no furtherinstitutional restructuring. TheWorld Bank supports these government initiatives by providing US$350 millions assistance. The Odisha power sector reformwas carried out in two phases as explained below: First phase of reform Two Government-owned corporateutilities were formed with agreement ensuring full autonomy with effect from1st April1996, thesewere:  Odisha Hydro Power Corporation (OHPC) ---responsiblefor transmission and distribution functions. Second phase of reform Pursuant to the Odisha Electricity Reform Rules,1998,the Govt. of Odisha transferred the distribution asset and properties along with personnel of GRIDCO to four distribution companies with effect from 26th November 1998.These four distribution companies namely CESCO,NESCO,WESCO and SOUTHCO continued to function as affiliates of GRIDCO up to 31st march 1999.Through a process of international competitive bidding, GRIDCO disinvested 51% share to private sector investors keeping a share holding 49% taken place. Assets have been assigned to respective companies. At present GRIDCO purchases power from independent generation utilities e.g. NTPC, OHPC, OPGC, IIPs, and CPPs and provide it to four privatized distribution companies who in turn cater to the need of customers. Outcome and leanings: The power sector restructuring in Odisha has shed significant light on the inherent difficulties in the reform process. Valuable lessons could be learnt from this project that could aid other state like Chhattisgarh in restructuring and reforming their power utilities. Some key results and insights are:
38  Following the power sector reform, the net cash flow for Governmentof Odisha has improved significantly as can be seen in the table at the end of this annexure.  The T&D losses that were assumed (staff appraisal Report of the world bank) to be 39.5% were actually greater than 50%.OERC based their tariff order considering 35% T&D losses, leading to an additional T&D loss of 15% being absorbed by GRIDCO all losses. The higher than anticipated T&D losses are one of the most important reason for the current situation in Odisha Where in the private distribution companies are unable to pay GRIDCO and hence have caused shadow on the overall reform exercise. The higher than assessed T&D losses were in turn on account of higher agriculture consumption, which were actually commercial losses. Non metered supply to most agriculture consumers madeit impossible to estimate the true extent of the T&D losses  Even though 100% collection efficiency was assumed by FY98, the actual collection was 83% in FY99.  Tariff increase was assumed to be 16% in FY 97 and 18% in FY98.Haryana and Andhra Pradesh learnt from Odisha example and have provided for transition period support fromthe state government. FORMATION OF GRIDCO GRIDCO incorporated in the under the Indian companies Act 1956 on April 20, 1995.GRIDCO will be responsible for transmission, coordination of the system planning and operations, distribution and contracting for new generation.GRIDCO is represented as Odisha state Electricity Board’s successor organization and will represent Odisha at Eastern Region Load Dispatch Centre operated by POWERGRID. On 28 November, GRIDCO announced its intention to part the business of it into four distribution zones and shortly thereafter issued the RFQ and background information documents. DISTCO’s have been incorporated for the four distribution zones and the business will be transferred to the DISTCO’s. At this stage the DISTCO’s will be wholly owned subsidiaries of GRIDCO. Privation is to be way of the transfer from GRIDCO to the DISTCO’S which have been formed to acquire the Zonal Business, through an ICB (INTERNATIONAL CompetitiveBid) process.
39 The principal activities of each of the zonal business are the supply of electricity to consumer’s operations and maintenance of the distribution network, connection of new consumers and billing and collection of revenue. In addition, at GDICO head office, activities carried out centrally include regulatory affairs unit, rural electrifications, PMU, stores procurement, civil.Works DSM (Demand Side Management), finance, legal, and human resources.The distribution system in Odisha is supplied primarily through 132/33KV Grid sub-station (with some 220/33KV sub- station).The system operates at 33KV and 11KV, where 33KV as used as a sub- transmission voltage. Following important objectives are to be achieved. a. To provide“reliable electricity supply “to its users. b. To enable pick and energy demand to be meet at the load growth increases c. To reduce the technical loss levels of the system Power will be supplied the DISTCO’S .By GRIDCO under theterm of BSA (Bulk Supply Agreement) at the BST (Bulk Supply Tariff). GRIDCO’s six main function represented below: 1. Corporateplanning and divestiture 2. Human Resource Management 3. Finance 4. Commercial 5. Distribution 6. Transmission ORGANISATION UNDER STUDY: SOUTH CO FORMATION OF SOUTHCO: The southern Electricity Supply Company of Odisha Limited (SOUTHCO) was incorporated on 19-11-1997 under the companies Act 1956 as a public Limited company. The Company started functioning with effect from 26-11-1998, under the distribution and retail supply license Of GRIDCO, after notification in the official gazette by the govt. of Odisha. SOUTHCO receives Distribution and retail supply license from
40 Odisha Electricity Regulatory Commission (OERC) for distribution and retail supply of electricity in the southern Odisha ,consisting of distribution districts of Ganjam, Gajapati, Rayagada, Koraput, Boudh, Kandhamal, Nawrangpur, Malkangiri and Puri (some parts) witheffect from 01-04-1999. By virtue of Power sector reform in Odisha, SOUTHCO become a subsidiary of BSES Limited, Mumbai on 1st April, 1999 by acquisition of 51% of the shareholding of the company by BSES Limited. The Company has authorized and paid up capital of Rs.37.66 crores. PRIVATISATION: In 1993 GOO (Government of Odisha) commenced an extensive reform program of electricity sector in Odisha. In 1995 the state legislature enacted the reform act which is financial instrument if the reform. OERC electricity regulating authority in India was established in August1996 under the reform Act. The transmission and distribution business of OSEB (Odisha State Electricity Board) were transferred to GRIDCO on April 1996, GOO (Govt. Of Odisha) issued a policy statement setting out its continuing objectives for reform. In March 1997, OERC issued its firsttariff order. The GRID Corporation of Odisha limited incorporated under the provisions of the companies Act 1956 with effect from the 20th of April 1995 with the main objects of engaging in the business of procurement, transmission and bulk supply of electricity energy. SOUTHCO LTD. (a subsidiary of BSES ltd.)Has been given license for retail supply of power to consumer in the district of Ganjam, Gajapati, Rayagada, Koraput, Boudh, Kandhamal, Nawrangpur, Malkangiri.Today having nineteen electrical division under SOUTHCO, it caters to the electrical power needs of about 16 lakhs consumers. SOUTHCO,receives its+ requirement of resource from different 132/33 KV and sub- stations such as Berhampur, Chatrapur, Narendrapur, Aska, Digapahandi, Boudh, Bhanjanagar, Phulbani, Rayagada, Jayanagar (Jeypore), Tentulikhuntietc. The collaboration with Reliance Energy Limited came about when GRIDCO began the process inviting bids from national as well as international companies for choosing investors in privatesectors.
41 These would in acquire equity shares in the four companies in due course. The bid of the Reliance group was accepted and it acquires the right to make investment in three of the total four companies. These were SOUTHCO, NESCO and the WESCO. The total share of the company is as: PRIVATISATIONOF DISTRIBUTIONSYSTEM What do we wantto achieve fromprivatization? OPERATIONAL IMPROVEMENTS a. Improvequality of serviceand reducelosses. b. Improveoperationalefficiencies and reduce losses FINANCIAL BENEFITS a. Attract private investment into distribution business. b. Reduce the present governmentfunding of the electricity sector. c. Contribute to increase economic growth in Odisha. EMPLOYEE CONSIDERATIOON a. Create opportunities for secured and increasingly rewarding employment for qualified personnel. 49% GRIDCO 51% REL TOTAL SHARE OF THE COMPANY
42 b. Providea stable environment for employees (SOUTHCO)(Stations): The following are the receiving stations under SOUTHCO, Odisha  Aska  Tentulikhunti  Therubali  Balimelapower house  Sunabeda  Narendrapur  Parlakhemundi  Sonepur  Balugaon  Bhanjanagar  Berhampur  Chhatrapur  Ganjam  Jayanagar  Mohana  Phulbani  Rayagada  PERSONAL DEPARTMENT AND INFORMATION SYSTEM OF SOUTHCO: Necessary are needed to carry out the proper flow of information. Right and capable people should be placed in right position to take full advantage of their respective talents. The employees should share the same guiding values. The objective and mission of the firm should be known and practiced by everyone with a common style of thinking and behaving. And a greatest need of improvement in the area of developing people who are able to represent alternative make judgements and think strategically. So that company could
43 choose right people to train, educate and motivate them, so that our company will be able to achieve objectives and to adapt to any changing environment. South co has the philosophy of recruitment to its various posts a select breed of ambition and dedicated personnel, who are healthy mind and have long range, plans to grow and develop with organizationSouth co believes in offering careers and not jobs. The company provides an excellent environment for growth and training and development.This department very much linked with all other departments. They are dealing with labour, the selection of workman, and their placement training and promotion problem. VariousReportsPrepared by Personnel Department as follows: 1. Personnel Report: report indicting the work and conduct of each employee at the time of consideration of annual increments and promotion. 2. Shift Managers Reports: Shift in charge submits a daily reports indicating how many workers havebeen presenton work, absentor leave due to any other reason. PRESENT CONSUMER BILLING SYSTEM (AT SOUTHCO) South co’s present billing system is fully computerized and centralizes at corporate office Berhampur. The entire billing system is managed by Reliance Infrastructure and Consultant Ltd. In addition to this spot billing activities is going on by different private agencies to provide better services to consumers like delivery of bills at the door step of the consumer. Presently “Know your bill” are being engaged in spot billing activities covering around 16 lakhs no. ofconsumers. In the present system meter reading preparation of bills and distribution of bills is being done on monthly basis at Corporate Office by RIEL. Spot billing system is implemented for domestic consumers in single phase connections. A collection of revenue is done through the field executive and by engaging the no. Of squad comparison of clerk/lineman and junior engineers. Revenue collected is being deposited in the divisions/banks within 48 hours of collection by the respective S.D.O’s. In rural and distance areas also J.E’s/S.D.O’s deposit, the money in bank and send the draftin to CorporateOffice, SOUTHCO. Documents requiredfor newservice connections: 1. Application formNo. 1-3nos
44 2. Proof of ownership. a) If a consumer purchased thepremises sale deed. b) Successor property-copy of will& death certificate. c) New constructed – site document and plan approved by B.D.A (originalcopy) d) Govt. Distributer-Allotment certificate e) Gifted-Gift Deed f) IF consumer tenant-registered lease deed. (N.B. – All are to be attested) 3. Passportsizephoto with attested (2 nos.) 4. Wiring completion certificate of electrical contractor-1no. 5. Treasury challan for (Dom) Rs.30/-,for (Com) Rs.75/- 6. Tahasilcess receipt (Xeroxcopy) 7. Municipality Holding Tax receipt (Xeroxcopy) 8. Site documents and plan approved of B.D.A (original copy) 9. Way leave permission 10. Route map (rough) 11. Processing fees a. For single phasesupply Rs.25/- b. For single 3 phase L.T supply Rs.100/- 12. Meter with Testing Report (If party will supply) FORMAT OF THE BILL: The bill shall contain consumer information, information regarding tariff and also contain  Consumer number, name and address  Name of division, sub-division, and section.  Connected load or contract demand of consumer.  Types of supply (i.e. single phase, two phases, three phases. L.T/ H.T. or E.H.T.)
45  Category of consumers (i.e. domestic , commercial)  Status of meter (OK/defective/missing)  Billing period/ cycle.  Initial meter reading of the billing period / cycle with date.  Final meter reading of the billing period / cycle with date.  Number of units consumed during the billing period.  Tariff applicable.  Amount payablewithin due date.  Amount payableafter due date.  Billing details o Electricity Duty. o Currentelectricity charges. o Currentmiscellaneous charges. o Arrears electricity charges. o Arrears miscellaneous charges o Delayed payment surcharges. o Rebate allowed. o CLASIFICATION OF CONSUMERS: Licensee may classify or reclassify the consumer into various categories fromtime to time as may be approved by the commission and fix different tariffs and conditions of supply for different class of consumers. Thepresentclassification as follows: (a)Domestic This category relates to supply of power to residential premises for domestic purposeonly and shall include consumer under Kutirjyotiprogramme. This shall also include supply to occupants of flats in multi-storeyed buildings or residential colonies receiving power at single point for domestic purpose when connected load for non-domestic load exceeds10% of the total connection load.
46 (b)GeneralPurpose: This category relates to supply of power to premises to which are used for office, business, commercial or other purpose not covered under any other category with a contract demand up to but excluding 110KVA and where the non domestic load exceeds 10% of the total connect load. (c) Street lighting: This category relates to supply of power to local authority or public body for providing street lights. (d)Railway transitions: This category relates to supply of power to railway transactions (e)Irrigation pumping Agriculture: This category relates to supply of power for pumping of water in lift irrigation, flow-irrigation, and for lifting of water from wells, nallas, stream, rivulets, rivers, ponds, dug wells exclusively for agriculture purpose. (f)Public water worksand sewerage pumpinginstallation: This category relates to supply of power for public water supply and sewerage pumping installation owned and operated by the state Government, local bodies or their agencies. (g) Generalpurpose: This category relates to supply of power gor all general purpose comprising mixed load and with a contract demand of 110 KVA and above where the non-domestic load exceeds 10% of the total connected load. (h)public Instructions:
47 This category relates to supply of power to educational institution including hostels, government hospitals, government dispensaries, primary health centres, charitable dispensaries, religious institution, dharma salas, electrics crematoriums and non- commercial sports organizations. (i) Small industries: This category relates to supply of power for industrial production purpose with a contract demand below 22KVA, wherepower is generally utilized as motive force. (j) Medium industries: This category relates to supply of power for industrial production with contract demand of 22KVA butbelow 110 KVA, wherepower is generally utilized as motive force. (k) Large industries: This category relates to supply of power for industrial production with contract demand of 110KVA but below 2500 KVA, where the power is substantially utilized as motive forcefor industrialproduction. (l)Heavy industries: This category relates to supply of power to industries with a contract demand of 25000 KVA and above power is substantially utilized as motive force. (m)Mini steel plant This category relates to supply of power steel to manufacturing units license operate as mini steel plants with contractdemand of 4444 KVA and above wherepower is ordinals utilized in induction or arc furnaces. (n) Power intensive industries: This category relates to supply of power to industries wherepower is substantially utilized as raw materials involving electro-metallurgical process with a contract demand of and above 2000 KVA (o) Temporary supply:
48 This category relates to supply of power to meet temporary needs on special occasions including marriage or other ceremonial functions, fairs , festivals, religious, functions or seasonalbusiness provided thatsuch power supply doesn’texceed a period of sixmonths. (p) IndustriesOwning Generation plants(captive Power Plants) Availing: Emergency supply only This category relates to supply of power to industries with generating plants or including captive power plants only for start-up of the unit or to meet their essential auxiliary and survival requirements in the event of the failure of their generation capacity. Such emergency assistance shall be limited to 25% of the rated capacity of the largest unity in the captive power plant or generating paint .in case any special provision is made in a power purchase agreement, approved or accepted by the commission, such provision shallapply in such cases, subjectto the provision of this code. Consumer under special agreement: 81. The licence may. Having regard to the nature of supply and purpose for which supply is required, fix special tariff and conditions of supply for the consumers not covered by the classification enumerated in this code. For such purpose licensee may enter into special agreements with the approval of the commission with suitable modifications in the standard agreement form. The commission shall separately approvethe traffic in the cases. Reclassification of consumers If it is found that a consumer has been classified in a particular category erroneously or the purpose of supply as mentioned in the agreement has changed or the consumption of power has exceeded the limit of that category or any order of reduction
49 enhancement of contract demand has been obtained, the engineer may reclassify him under appropriate category after issuing notice to him to execute a fresh agreement on the basis of the alerted classification or modified contract demand. If the consumer doesn’t take steps within the time indicated in the notice to executethe fresh agreement, the engineer may after issuing a clear seven days show cause notice and after considering his explanation, if any, may disconnect the supply of power TRAIFF DETAILS CHARGES FOR SUPPLY Tariff and charges: 83.Traffics and charges for supply of electricity shall be determined by the licensee with the approval of the commission under section 26 of the act. Such tariff, tariffs or charges shall take effect only after seven days from the date of publication in at is to daily newspapers having circulation in the area of supply. Thecharges may include:- (a) Minimum monthly charge (b) Demand charge (c) Energy charge (D) Other charge Minimum monthly charge: 84. Every consumer, during continuance of agreement under regulation 15, shall be liable topay minimum monthly charges even if no electricity is consumed for any reason whatsoever or supply has been disconnected due to default of the consumer. Demand charges: 85. (1) monthly demand charges shall be payable by the consumer on the basis of maximum demand and contract demand as determined in the tariff notification. In case
50 maximum demand meter is not provided or the metre has become defective, the monthly demand charges shall be payable on the basis of contract (2) such monthly demand charges shay be payable during the continuance of the agreement under regulation 15 even if no electricity is consumed for any reason whatsoever or supply has been disconnected due to default of consumer. (3) during statutory power cuts and power restrictions imposed by the licensee, if the restriction on demand is imposed for a period exceeding sixty hours in a month. The monthly demand charges shall be prorated in accordance with the period and quantum of demand restrictions imposed. In all other cases the consumer shall be liable to pay the full demand charges. Energy charges: 86. Energy charges as prescribed in the licensee’s tariff shall be payable by the consumer on the basis of actual consumption of the energy. Other charges: 87. The licensee may levy other charges including customer charges, connection charges, reconnection charges, delay payment surcharge, fuel surcharge, and power purchase surcharge and power factor penalty as approved by the commission from time to time. PAYAMENTOF BILLS: Payment of bills 89.It would be the duty of engineer or his authorized agent to ensure that the bills are dispatched with ten days from the end of billing cycle and records of such dispatched are duly maintained. 90. the charges payable by a consumer for supply of electrical power and other sums payable to the licenses shall be billed on prorated monthly basis indicating the period for which charges have been levied and the consumer shall pay the bill amount by the due date on the bill or within a period of seven days from the date of receiving bill. If for any reason the consumer does not receives the bill for the billing cycle within two weeks of the end of the billing cycle, it would be the obligation of the consumer to
51 approach the engineer and collect a duplicate bill. When supply to a new consumer is commenced or an agreement is terminated on a day other then the first day of a month, demand charges and other charges as applicable under tariff notification shall be levied prorate for the number of day during the month of which supply shall have been given or agreement shall have been in force. 91. The consumer has to make full payment of bill within the due date even if he raises a dispute regarding the correctness of the bill, provided that the consumer with connected load of 10k. W. or less shall pay at list the undisputed amount of the bill pending engineer’s decision on the dispute. (2) The engineer shall resolve the dispute within two months and take action under Regulation 92. 92. (1) if the licensee finds the bill to be erroneous, a revised bill shall be furnished to the consumer indicating a revised due date. Excess amount paid by the consumer shall be refunded by way of adjustment in the subsequent bill.Such excess amount.Shall be refunded together with interest at the rate of 2% per month from the date of payment of excess amount. (2) if the license is finds the bill to be correct, the consumer shall be intimated accordingly and notified to pay the balance, if any, within fifteen days with interest the rate of 20% per month from the due date. If the engineer does not resolve the dispute within two months stipulated in Regulation 91, the However, if the dispute is not resolved due to negligence or non- cooperation of the consumer, the consumer will be liable to pay interest. (3) Failure to make payment as provided under regulation 91 or regulation 92(2) above shall merit action as provided in regulation 96. 93. The billed amount shall be paid by the consumer either in cash or by Bank Draft or banker’s cheque, or where specifically allowed by the licensee, by account payee cheques or credit cards. 94. if the due date indicated in the bill for payment of the amount is a Sunday or a public holiday, the amount may be paid on the succeeding Working day. 95. The consumer shall first adjust the amount paid by the consumer towards electricity duty provided that in case of part payment, the proportionate share of the
52 duty from the total collection shall be adjusted first. Out of the balance, adjustments shall be made in the following order of priority: 1. Currentelectricity charges. 2. Currentmiscellaneous charges. 3. Arrear electricity charges. 4. Arrear miscellaneous charges. 5. Delayed paymentcharges. 96. Where a consumer neglects to pay the charges or dues or any part of the charges or dues, the engineer may after giving him not less than seven clear day notice in Writing and Without prejudice to the other rights and modes available for realization of the amount, disconnect the supply until the charges or dues and reconnection charges are paid by the consumer. Failure to take steps for clearance of the dues within the period of two months from the date of service of bill shall render the agreement liable to termination provided the initial period of agreement is over. REBATE 97. Payment of the billed amount in time shall entitled categories of consumers, specified in the tariff order under section 26 of the Odisha electricity Reform. Act 1995, to a rebate on such amount for the current billing period. Every bill shall indicate the amount payable by the relevant category of consumer if payment is made within the prescribed due date and the amount payable if the payment is made beyond the prescribed due date. The categories of consumer who are entitled to a rebate and the rate of rates of such rebate shall be determined by the license from time to time as part of the traffic as approved by the commission. Delayed payment surcharge 98. Category of consumers to whom delayed payment surcharge is applicable as per tariff order shall be liable to pay such delayed payment surcharge at the rate of 2% per month of default in payment by due date. There shall be no surcharge over surcharge.
53 InstalmentFacilities 99. Payment of bill by instalments may be granted by the licensee to the senior citizens and disabled in the domestic category on request and on production of proof. In respect of other, the facility may be granted at the discretion of the designated authority of licensee. Grant of instalments shall not affect the liability of the consumer to pay delayed payment surcharge till full clearance of the arrears. Consumers availing instalment Facilities shall not be eligible to avail rebate. The licensee may designate the authority to grantinstalment Facilities. Recovery of Arrear 100. In addition to other modes of recovery available under the law, the engineer shall be entitled to take resource to processing under the Odisha public Demand recovery Act. 1962 (Act 1 of 1963) for realization of the licensee’s dues if such dues are treated as public demand
54 SOUTHERN ELECTRICITY SUPPLYCOMPANYOF ODISHA LIMITED BALANCE SHEET AS at31ST MARCH, 2013 Particulars As at 31st march,2013 As at 31st march,2012 1. EQUITY ANDLIABLITIES (1)share holder’sfunds (a)share capital (b) Reserve andsurplus (2)Non-CurrentLiabilities: (a)Long-termborrowings (b) Otherlong-termLiabilities (c)Longtermprovision (₹ in lakhs) 3,766.00 (64,091.50) (60,325.50) 16,384.59 14,478.72 30,938.48 (₹ in lakhs) 3,766.00 (61,127.49) (57,361.49) 17,509.28 13,348.72
55 (3) Current Liabilities: (a)Short-termborrowing (b)Trade payables (c)Othercurrentliabilities (d) Short-termprovisions TOTAL ii. ASSETS (1) Non-currentassets (a)Fixedassets (i) Tangible assets (2) (ii) Capital work-in-progress (b)Longtermloans&advances (c)Othernon-currentassets (2) Current Assets: (a)Inventories (b) Trade receivables (c)Cashandbank balance (d)Short-termloansandadvances (e)Othercurrentassets TOTAL 61801.78 5,553.30 17012.68 57699.62 30,615.67 1,10,881.27 112,357.55 22,509.23 2,330.29 24,839.52 17.75 43,167.04 68,024.31 5,203.58 26,463.18 9,852.94 1007.91 1,805.63 44,333.24 1,12,357.55 24,144.72 55,002.72 4,710.66 9,279.29 49,395.39 19,509.98 83,435.31 81,076.54 23,411.97 2,191.22 25,603.20 17.75 26,855.29 52,730.13 2,761.83 16,735.08 7,760.26 347.97 995.16 28,346.41 81,076.54 SOUTHERN ELECTRICITY SUPPLYCOMPANYOF ODISHA LIMITED STATEMENT OF PROFIT AND LOSS FOR THE YEAR ENDED Particulars Note Year ended 31st mar,2013 Year ended 31stmar,2012
56 Revenue fromoperation OtherIncome Total Expenses Cost of electrical energypurchased(netrebate) Employee benefitsexpenses Finance costs DepreciationandAmortizationexpenses Less:Transferredfromservice contributionandcapital subsidy Otherexpenses Total (Loss) before Exceptional Itemsandtax Exceptional Items (Less):ConsideredasRegulatoryAssets Tax expenses: Currenttax Deferredtax (Loss)aftertax Earningper equityshare (face value 10pershare) Basic Diluted ( ₹ in lakhs) 91,283.27 3197.96 94,481.23 61,175.97 27,324.66 2,625.21 1,802.62 (192.66) 1,609.96 5,168.31 97,904.10 (3,422.88) - - (3,422.88) - - (3,422.88) (9.09) (9.09) ( ₹ in lakhs) 62,239.32 887.12 66,760.81 44946.81 13662.85 2127.31 1758.25 (188.02) 1570.23 6,615.65 68922.85 (2162.04) 12,908.64 (12,908.64) (2162.04) - - (2,162.04) (5.74) (5.74) SOUTHERN ELECTRICITY SUPPLYCOMPANYOF ODISHA LIMITED BALANCE SHEET AS at 31ST MARCH, 2015 Particulars As at 31st march,2015 As at 31st march,2014
57 1. EQUITY ANDLIABILITIES (1)share holder’sfunds (a)share capital (b) Reserve andsurplus (2)Non-CurrentLiabilities: (a)Long-termborrowings (b) Otherlong-termLiabilities (c)Longtermprovision (3) Current Liabilities: (a)Short-termborrowing (b)Trade payables (c)Othercurrentliabilities (d) Short-termprovisions TOTAL ii. ASSETS (1) Non-currentassets (a)Fixedassets (i) Tangible assets (2) (ii) Capital work-in-progress (b)Longtermloans & advances (c)Othernon-currentassets (2) Current Assets: (a)Inventories (b) Trade receivables (c)Cashandbank balance (d)Short-termloansandadvances (e)Othercurrentassets TOTAL ( ₹ in lakhs) 3,766.00 (76,779.62) (73,013.62) 15,087.30 18,754.15 38,726.50 72,567.95 9,426.28 31,556.74 68,205.70 44,320.16 1,53,508.88 1,53,063.20 32,963.24 5,697.89 38,661.13 113,89 55,721.65 94,496.20 6,430.48 31,749.82 16,494.20 1,167.80 2,724.24 58,566.53 1,53,063.20 (₹ in lakhs) 3,766.00 (52,087.74) (48,321.74) 16,149.41 16,596.09 34,108.37 66,853.87 6,813.71 28,104.71 59,696.94 33,860.20 1,28,475.55 1,47,007.69 21,429.77 17,704.58 39,134.35 203.54 55,574.31 94,912.20 6,188.14 26,634.36 17,140.44 1,734.72 397.83 52.095.49 1,47,007.69 SOUTHERN ELECTRICITY SUPPLYCOMPANYOF ODISHA LIMITED STATEMENT OF PROFIT AND LOSS FOR THE YEAR ENDED Particulars Note Year ended 31st mar,2015 Year ended 31stmar,2014
58 Revenue fromoperation OtherIncome Total Expenses Cost of electrical energypurchased(netrebate) Employee benefitsexpenses Finance costs DepreciationandAmortizationexpenses Less:Transferredfromservice contributionandcapital subsidy Otherexpenses Total (Loss) before tax Tax expenses: Currenttax Deferredtax (Loss)aftertax Earningper equityshare (face value 10pershare) Basic Diluted 75,101.99 1,473.82 76,575.81 60,673.01 20,885.24 3,278.69 2,000.21 (672.63) 1,327.58 12,538.00 1,05,702.52 (29,126.71) - - - (29,126.71) (77.34) (77.34) 92.290.60 1,632.76 93,923.36 60,899.25 20,062.23 2,832.57 1,837.68 (196.54) 1,641.14 9,564.35 94,999.54 (1,076.18) - - - (1,076.18) (2.86) (2.86)
59 Types of Ratio Liquidity Ratio Current Ratio Quick/ Acid test Ratio Absolute Liquid Ratio Activity Ratio Inventory Turn over Ratio Receivables Turnover Ratio Payables Turnover Ratio Profitability Ratio General Gross Profit Ratio Net Profit Ratio Operating Ratio Overall Return on Investment Ratio Dividend Payout Ratio Price Earning Ratio Leverage Ratio Debt- Equity Ratio Funded Debt To Total Capitalization Debt Service Ratio
60 Liquidity Ratios:- Liquidity refers to the ability of a concern to its current obligations as and when these became due. The short term obligations are meet by realizing the amount from current, floating or circulating assets. To measure the liquidity of a firm, the following ratio can be calculated. 1. Current Ratio 2. Quick /Acid test Ratio 3. Absolute liquid Ratio 1. Current Ratio:- The ratio between all current assets and all current liabilities. Another way of expressing liquidity. It is a measure of the firm’s short-term solvency. It indicates the availability of current assets in rupees for every one rupee of current liability. A ratio of greater than one means that the firm has more current assets than current claims against them Current Assets Current ratio = ------------------------------- Current Liabilities Interpretation:- Generally a high Current ratio is an indication that the firm is liquid that is has the ability to pay its current liability in time. Relatively a low Current ratio indicates that the liquidity position of firm is not good. It will face difficulty in meeting current obligation. As a matter of standard or thumb rules a current ratio of 2:1 is concerned as satisfactory. 2. Liquid / Acid test Ratio :- Quick ratio establishes a relationship between quick, or liquid, assets and current liabilities. An asset is liquid if it can be converted into cash immediately or reasonably soon without a loss of value. Current Assets – Inventories Quick Ratio =______________________________ Current liabilities
61 Interpretation:- Usually a high quick ratio is an indication that a firm is able to meet short term obligation in due time without difficulty and vise-versa. A quick ratio of 1:1 is concerned a satisfactory. 3. Absolute Liquid Ratio:- The Ratio between Cash and Marketable Securities and Current Liabilities Cash and Bank Balances Absolute Liquid Ratio= ----------------------------------------- Current Liabilities Interpretation:- The absolute liquid ratio should be (0.5:1) . Here, the company should be able to meet its half of the current liabilities at any time. It indicates the actual liquid available to meet its current liabilities. Liquidity Ratios Table Sl.No Ratios 2011-12 2012-13 2013-14 2014-15 1 Current Ratio 0.343 0.400 0.405 0.382 2 Quick Ratio 0.310 0.353 0.357 0.339 3 Absolute Liquid Ratio 0.093 0.089 0.133 0.107
62 Interpretation:- From the above table, it has been observed that SOUTHCO is exhibiting its insufficiency of current assets should be assessed bycomparing them with short term liabilities. Here, It is noticed that no one ratio is crossing the thumb rules of it individually. There is an increasing trend since last four years that is quite good. But still, the company should improve its liquidity position so as to increase its goodwill and ability to keep the operations safe in side. Activity Ratios:- Funds are invested in various assets to make sales and earned profit. The efficiency with which assets are managed directly effects the sales volume and profitability. Activity ratio is also known as Turnover Ratio. It measures the efficiency with which a firm manages its assets. The ratios are called as turnover ratio because the indicate the speed with which assets are converted or turned over into sales. Turnover Ratio includes the following: 1. Inventory Turnover Ratio:- It is also called as Stock Turnover Ratio. It is calculated to know the no. of times the average stockis converted or turnover during the year. Cost of Goods sold Inventory Turnover Ratio = --------------------------------- Average Stock 0 0 0 0 0.343 0.4 0.405 0.382 0.31 0.353 0.357 0.339 0.093 0.089 0.133 0.107 0 0.05 0.1 0.15 0.2 0.25 0.3 0.35 0.4 0.45 Ratios Current Ratio Quick Ratio Absolute Liquid Ratio
63 Interpretation:- Increasing the turnover ratio is better is the condition because it increases the overall sales revenue of the organization. 2. ReceivablesTurnoverRatio:- It is calculated to measure the debt collecting capacity of a firm. It indicates the speed at which the debtors are converted into cash. It is expressed in terms of time. Net credit annual Sales Debtors Turnover Ratio = ---------------------------------- Average Trade debtors Average collection period = 365/Ratio 3. Payables Turnover Ratio:- The ratio is obtained by dividing the Annual net credit Purchases by Average Payables (Creditors). Net Credit Annual Purchases Creditors Turnover Ratio = --------------------------------------------- Average Trade Creditors Average Payment period = 365 / Ratio Activity Ratio Table
64 sdf SL.NO Ratios 2011-12 2012-13 2013-14 2014-15 1 Inventory Turnover Ratio 20.32 22.92 16.20 11.9 2 Receivables Turnover Ratio 6.98 4.39 3.81 4.88 3 Payables Turnover Ratio 5.51 4.65 2.69 2.03 Interpretation:- The turnover ratio of SOUTHCO has more efficient management due to higher the value of debtor’s turnover and lowers the creditor’s turn over. Therefore, the SOUTHCO has better liquidity position. So the SOUTHCO should continue their better turn over period as far as possible. There is a decreasing trend in both Stock and Debtors ratios. And the creditors’ turnover ratio is decreasing trend which means better is the condition. Profitability Ratios:- I. General Profitability Ratios:- 1. Gross Profit Ratio:- 20.32 22.92 16.2 11.9 6.98 4.39 3.81 4.885.51 4.65 2.69 2.03 0 5 10 15 20 25 Ratios 2011-12 2012-13 2013-14 2014-15 Inventory Turnover Ratio Receivables Turnover Ratio Payables Turnover Ratio
65 This ratio is calculated to measure the proportionof gross profit to net sales. Gross Profit Gross Profit Ratio = ------------------------ x 100 Net Sales 2. Net Profit Ratio:- It is calculated to measure the proportionof net profit to net sales. Here the net profit means net profit after tax. Net profit after tax Net Profit Ratio = ------------------------------- x 100 Net Sales 3. Operating Ratio:- This ratio is calculated to express the percentage of operating costto net sales. Operating Cost Operating Cost Ratio = ----------------------- x 100 Net Sales II. Overall Profitability Ratio:- 1. Return On Investment:- This ratio is also called as Return on Share-holders fund. Net profit after tax Return on Investment = --------------------------------- x 100 Share Holders fund / Net Worth 2. Dividend Payout Ratio:- It is calculated to know the extent to which earnings have been retained in the business and the extent it is distributed to the share holder’s.
66 Dividend Per share DPR = ----------------------------------- x 100 Earnings per Share 3. Price Earnings Ratio:- This ratio is calculated to measure the relationship between market price per share and earnings per share. Market price per share PER = --------------------------------- x 100 Earnings per share Leverage Ratios:- Leverage ratios are also called as capital structure ratio. It refers to the relationship between various long term from financing such as debentures, bonds, mortgages, preference capital, equity capital etc . In every business financing the assets is a great problem. As a general rule there should be a propermix of debt and equity. Leverage ratios are calculated to test the long term finance position of the firm. 1. Debt-Equity Ratio:- This ratio is calculated to measure the relationship between claims of insiders and outsiders against the assets of the firm thus it is relationship between external equity and internal equity. Total Long term Debts Debt- equity ratio = --------------------------------- x 100 Share holders fund / Net worth Here, the standard norm of this ratio is (0.5:1) 2. Funded Debt to TotalCapitalization:-
67 This ratio is calculated to know the proportion of outside long term borrowings to the total long term borrowings. Funded Debt FDTC = ------------------------------ x 100 Total capitalization Funded Debt = Outside long term loans Total Capitalisation = Share holders fund + Long term loans 3. Debt Service Ratio:- It is also called as interest coverage ratio. It is calculate to determine the debt service capacity of the firm. It is calculated by the bankers and other money lenders. Net Profit before Interest And tax Debt service ratio = --------------------------------------- x 100 Fixed interest charges Leverage Ratios Table SL.NO Ratios 2011-12 2012-13 2013-14 2014-15
68 1 Debt- Equity Ratio -0.95 -1.02 -1.38 -0.99 2 Funded Debt to Total Capitalization -23.31 41.86 3.61 -162.82 3 Debt - Service Ratio -0.016 -0.303 0.620 -7.883 Interpretation:- From the above table shows that the leverage position of the company is not good in condition. All the ratios show a negative position. The company should improve their own funds to continue with the operations and to get profits. 0 0 0 0 -0.95 -1.02 -1.38 -0.99 -23.31 41.86 3.61 -162.82 -0.016 -0.303 0.62 -7.883 -200 -150 -100 -50 0 50 100 Ratios Debt- Equity Ratio Funded Debt to Total Capitalization Debt - Service Ratio
69 SUGGESTIONS  The company has to increase the profit maximization and has to decrease the operating expenses .
70  The company should maintain sufficient cashand bank balances; they should invest the idle cash in marketable securities or short term investments in shares, debentures, bonds and other securities.  The company must reduce its debtors collection period from 83 & 84 days to 40 days be adopting credit policy by providing discounts to the debtors.  Return on investment fluctuates every year. The company has to make efforts in increasing return on investments by reducing its administration, selling and other expenses.  The company should increase its interest coverage ratio to serve long term debts.  The net loss of the company is increasing over the study period. The organization should improve its operational activities to cover the losses.  As south co is a service oriented company we should not expect more profits but still the company should keep the activities of the organization as much as possible profitably to keep the interest of the share holders as well as company a safe side.  The ratios of the company are not so favorable  Employee expenses are increasing year by year which decreases the profit the company should keep this expenses as minimum as possible Conclusion SOUTHCO, an organization caring the service burden of many consumers, is recognized as the bestdistribution company among the four distribution companies. The initial year
71 of privatization had experience turbulence, human financial crises etc. but day by day, year by year, the pattern is not under control. The days of super cyclone too bent the head of the organization. But the war footing steps taken by the courageous manpower, deposits, personaldifficulties made the unbelievable task to a realistic one. This was a qualitative performance of SOUTHCO, which own the lakhs of hearts. While doing the study, one had kept in mind, always the quality as the main factors for study the consumers and due to the goodwill of the organization. BIBLOGRAPHY 1. I.M.Pandey : Financial Management
72 2. S.P. Jain & K.L. Narang : Cost & Management accounting 3. K.Rajeswara rao & G. Prasad : Accounting & Finance Web-sites: www.google.com www.amaron.co.in www.slideshare.net

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